Global Chart Book - February 2009

Jay H.
Bryson, Global Economist

jay.bryson@wachovia.com
1-704-383-3518
Tim Quinlan, Economic Analyst
tim.quinlan@wachovia.com
1-704-374-4407
SPECIAL COMMENTARY February 12, 2009
Global Chartbook: February 2009
This report is available on www.wachovia.com/economics and on Bloomberg at WBEC

February 12, 2009 SPECIAL COMMENTARY
Contents
World............................................................................................................................................... 6
Dollar Exchange Rates................................................................................................................... 7
United States................................................................................................................................... 8
Euro-zone........................................................................................................................................ 9
Germany........................................................................................................................................ 10
France ............................................................................................................................................ 11
Italy ................................................................................................................................................ 12
Japan .............................................................................................................................................. 13
United Kingdom .......................................................................................................................... 14
Canada........................................................................................................................................... 15
Australia........................................................................................................................................ 16
Norway.......................................................................................................................................... 17
Sweden .......................................................................................................................................... 18
Switzerland ................................................................................................................................... 19
Brazil.............................................................................................................................................. 20
China.............................................................................................................................................. 21
India............................................................................................................................................... 22
Mexico ........................................................................................................................................... 23
Poland............................................................................................................................................ 24
Russia............................................................................................................................................. 25
Singapore ...................................................................................................................................... 26
South Africa .................................................................................................................................. 27
South Korea .................................................................................................................................. 28
Taiwan ........................................................................................................................................... 29
Turkey ........................................................................................................................................... 30
Energy Markets ............................................................................................................................ 31
2
Executive Summary
Global Economy is in Deepest Recession in Decades
The heady days of 2004-2007, when global GDP growth averaged about 5% per Global economic
annum, seem like a distant memory now. Growth in most countries slowed in the activity went into
first half of 2008 due in part to monetary tightening, the unprecedented rise in energy freefall in the fourth
prices and dislocations in credit markets. However, global economic activity went quarter of 2008.
into freefall in the fourth quarter of last year as credit markets froze up in the wake of
Lehman Brothers’ failure. Industrial production in the OECD countries (i.e., the
thirty most developed economies in the world) plunged 7.6% in November, the
sharpest year-over-year contraction since records began in 1975.
We forecast global GDP will decline 0.3% this year. Although our projection may not Global GDP will
sound “bad,” global GDP has never contracted, at least not since the International probably contract in
Monetary Fund (IMF) began calculating the series in 1970. Every G-7 economy is in 2009, the first year of
deep recession at present, and growth in the developed world likely will remain negative growth since
negative over the next few quarters. The emerging world is hardly immune to the records began in 1970.
sharp reduction in global trade that is underway. Although not every developing
country will experience outright recession, growth in the developing world has
already slowed sharply and further weakening seems very likely. Developing
economies that had over-leveraged financial sectors – many countries in Eastern
Europe would fall into this category – will be especially hard hit. A number of
countries, including Belarus, Hungary, Iceland, Latvia, Pakistan and Ukraine, have
already gone to the IMF with hat in hand. There probably will be more to follow.
What will turn the situation around? For starters, governments have responded to Policy easing should
the crisis by announcing steps to shore up their financial systems. Although the help to stabilize
global financial system is hardly back to “normal”, some segments of the credit economies later this
markets are starting to function again. In addition, governments are attempting to year.
stimulate their economies via expansionary macroeconomic policies. Significantly
lower interest rates and fiscal stimulus should help to stabilize economic activity
later this year. The sharp decline in inflation in most countries over the past few
months should help to shore up consumer spending by supporting real income.
Global growth should be stronger in 2010 than in 2009, but it will probably fall short
of its long-run average (3.7% per annum). Underlying all of our projections is our
assumption that policymakers will take the necessary steps to prevent the global
financial system from locking up again à la last autumn. If that assumption proves to
be overly optimistic, then global economic activity would contract even more than
our already grim outlook projects.
The U.S. economy has been in recession since December 2007, and it likely will The eventual recovery
remain there until this autumn. Unlike the strong recoveries that followed the deep in the United States
recessions of 1973-75 and 1981-82, the upturn that we project will take root later this likely will be very
year probably will be relatively weak, at least initially. Growth in consumer spending sluggish.
probably will be very sluggish over the next few years as consumers repair battered
balance sheets and raise abysmally low saving rates. We project U.S. real GDP will
grow about 1% in 2010, well below the 3% annual growth rate the economy averaged
between 1992 and 2007.
Deep recessions are underway as well in Canada, the Euro-zone and the United
Kingdom. On a peak-to-trough basis, real GDP in these economies will probably
contract 2 to 4%, which are deep recessions by any measure. Some observers use the
3
word “depression” when describing the Japanese economy at present. Indeed,

Japanese industrial production essentially collapsed in the fourth quarter. Foreign
central banks have slashed policy rates in response to the recent freefall in economic
activity. The Bank of England has cut its policy rate to 1.00%, and the lower bound of
0% beckons over the next few months. The European Central Bank has been slower
to ease policy – its main policy rate currently stands at 2.00% – but we project further
rates cuts in the months ahead for the ECB.
Some individual Inflation rates in most countries shot higher in the first half of 2008 and commodity
countries could prices went through the roof. However, commodity prices have subsequently
experience a period of collapsed as economic growth has slowed sharply. After rising to nearly 6% in 2008,
mild price declines this which is the highest rate in about 10 years, global inflation should recede to roughly
year. 2% this year. Although we do not believe the world will experience generalized
deflation, some individual countries could experience a period of mild price declines
this year.
Dollar Appreciation Should Continue in Near Term

After following a downward trend between 2002 and mid-2008, the trade-weighted
value of the U.S. dollar is up about 15% on balance since last July. The dollar’s
appreciation is not a reflection of a positive near-term outlook for the U.S. economy.
Rather, the prognosis for many foreign economies has deteriorated more rapidly
than for the U.S. economy since mid-summer. Whereas many investors had expected
most foreign economies to avoid recession, it has become glaringly obvious in recent
months that those economies will experience their own sharp downturns due to the
global nature of the credit crunch.
The dollar should In our view, the dollar should rally further in the near term. U.S. authorities are
appreciate further in the generally taking more aggressive steps to stimulate the economy via aggressive
near term. monetary and fiscal easing than their counterparts in most other countries.
Consequently, signs (or at least expectations) of stabilization and subsequent
recovery should show up in the United States before they do in most other
economies. Expectations of recovery should be conducive for further dollar strength.
The dollar will However, the problems facing the U.S. economy are generally more serious than the
probably give up its problems that confront many other economies. Although growth in the United States
gains once the reality of should turn positive again later this year, the recovery we project will probably be
a painfully slow very sluggish. We are usually loath to forecast turning points in exchange rates at
recovery become some point in the future, but sustained dollar strength against the backdrop of very
obvious. slow U.S. economic growth does not seem to be very credible. Therefore, the dollar
could give up its gains and begin to depreciate later this year or early next year as the
reality of a very slow U.S. economic recovery becomes painfully clear to investors.
4
Forecasts as of February 11, 2009
Wachovia Currency Forecast

(End of Quarter Rates)
2009 2010
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Major Currencies
Euro ($/€) 1.25 1.18 1.16 1.16 1.20 1.25 1.30 1.35
Wachovia International Economic Forecast U.K. ($/£) 1.44 1.42 1.40 1.45 1.48 1.54 1.58 1.64
U.K. (£/€) 0.87 0.83 0.83 0.80 0.81 0.81 0.82 0.82
(Year-over-Year Percentage Change)
Japan (¥/$) 94 100 105 108 105 102 100 98
GDP CPI
Other Industrialized
2008 2009 2010 2008 2009 2010 Canada (C$/US$) 1.25 1.28 1.30 1.28 1.22 1.15 1.10 1.08
Global 3.4% -0.3% 2.9% 5.6% 1.1% 2.2% Switzerland (CHF/$) 1.20 1.28 1.32 1.32 1.30 1.26 1.22 1.18
Major Economies Norway (NOK/$) 6.90 7.00 6.90 6.70 6.40 6.20 5.90 5.70
United States 1.3% -2.7% 1.1% 3.8% -1.1% 1.7% Sweden (SEK/$) 8.30 8.60 8.60 8.40 8.00 7.60 7.30 7.00
Eurozone 0.8% -2.4% 1.4% 3.3% 0.0% 0.9% Australia (US$/A$) 0.66 0.65 0.64 0.68 0.72 0.76 0.78 0.80
Germany 1.1% -2.4% 1.1% 2.8% -0.3% 0.7% Developing Economies
France 0.7% -1.8% 1.7% 3.2% 0.1% 0.9% Mexico (MXN/$) 14.00 14.25 14.50 14.00 13.50 13.00 12.50 12.00
Italy -0.7% -3.0% 0.8% 3.5% 0.4% 0.6% Brazil (BRL/$) 2.30 2.40 2.40 2.30 2.20 2.00 1.90 1.80
UK 0.7% -2.7% 1.0% 3.6% 0.4% 0.7% Poland (PLN/$) 3.70 4.00 4.20 4.00 3.75 3.50 3.30 3.15
Japan -0.3% -3.8% 0.8% 1.4% -0.8% -0.1% Russia (RUB/$) 38.00 39.00 37.00 35.00 33.00 32.00 31.00 30.00
Turkey (TRY/$) 1.62 1.65 1.68 1.66 1.60 1.55 1.52 1.50
Canada 0.6% -1.6% 2.1% 2.4% 0.5% 1.3%
South Africa (ZAR/$) 10.00 10.25 10.20 9.80 9.60 9.40 9.20 9.00
Developing Economies
China (CNY/$) 6.85 6.82 6.80 6.75 6.60 6.50 6.40 6.30
China 9.1% 6.0% 8.0% 5.9% -0.6% 0.9% India (INR/$) 48.80 49.00 49.20 48.50 47.50 46.50 46.00 45.00
India 6.5% 5.0% 7.0% 7.9% 7.4% 5.0% Korea (KRW/$) 1380 1400 1375 1325 1275 1250 1225 1200
Mexico 1.4% -1.8% 2.1% 5.1% 5.1% 3.3% Singapore (S$/US$) 1.50 1.54 1.55 1.53 1.50 1.46 1.42 1.40
Brazil 6.7% 2.1% 3.1% 5.7% 4.6% 3.9% Taiwan (TWD/$) 34.00 34.25 34.25 33.75 33.00 32.50 32.25 32.00
Data As of: February 11, 2009
1
Data as of: February 11, 2009
1
Wachovia International Interest Rate Forecast

(End of Quarter Rates)
3-Month LIBOR 10-Yr Government Security
2009 2010 2009 2010
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
United States 1.10% 0.90% 0.80% 0.70% 0.70% 0.70% 1.00% 1.20% 3.00% 3.10% 3.10% 3.10% 3.20% 3.30% 3.40% 3.50%
Japan 0.55% 0.40% 0.20% 0.20% 0.20% 0.20% 0.35% 0.40% 1.40% 1.50% 1.60% 1.70% 1.80% 1.90% 2.00% 2.00%
Euroland 1.80% 1.20% 1.20% 1.20% 1.30% 1.75% 2.50% 3.25% 3.30% 3.50% 3.90% 4.20% 4.30% 4.40% 4.45% 4.50%
U.K. 1.60% 1.10% 0.75% 0.50% 0.75% 1.25% 1.75% 2.25% 3.70% 3.80% 4.00% 4.20% 4.40% 4.50% 4.55% 4.60%
Canada 1.00% 0.90% 0.70% 0.70% 1.25% 2.00% 2.75% 3.50% 3.00% 3.20% 3.50% 3.80% 4.20% 4.40% 4.45% 4.50%
1
Data As of: February 11, 2009
5
World OECD Industrial Production

Year-over-Year Percent Change
9% 9%
The effects of the credit crunch caused global growth to

6% 6%
slow significantly last year. Indeed, it appears that
economic activity in many countries contracted sharply in
3% 3%
the fourth quarter of 2008. We forecast that global GDP
will be essentially flat in 2009, which would be the slowest
0% 0%
year for global growth since records began in 1970.
-3% -3%
The recessions that are underway in every G-7 economy
will probably be at least as painful as the downturns of the
-6% -6%
mid-1970s and the early 1980s. However, the major
governments of the world have averted a catastrophe by OECD Industrial Production: Nov @ -7.6%
taking bold steps to support the global financial system. -9% -9%
96 97 98 99 00 01 02 03 04 05 06 07 08
Many major economies have also announced fiscal
stimulus measures that will help backstop economic
activity. Central Bank Policy Rates
9.0% 9.0%
The developing world will also experience significantly US Federal Reserve: Feb @ 0.25%
8.0% Bank of England: Feb @ 1.00% 8.0%
slower economic growth this year. Developing countries ECB: Feb @ 2.00%
Reserve Bank of Australia: Feb @ 3.25%
where economic fundamentals are not sound will 7.0% 7.0%
probably experience deep recessions as capital flows
6.0% 6.0%
reverse. Indeed, some developing countries have already
come to the IMF seeking adjustment assistance. 5.0% 5.0%
,o
4.0% 4.0%
The remarkable run-up in commodity prices between 2003
and the first half of 2008 led to generalized inflation fears. 3.0% 3.0%
However, commodity prices have essentially collapsed as 2.0% 2.0%

global recession has taken hold. Economic weakness and
1.0% 1.0%
the collapse of commodity prices should cause inflation
rates in most countries to decline significantly this year. 0.0% 0.0%
Some countries may experience mild deflation this year. 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
CRB Index
Monthly Average Level
450 450
Global CPI
16% 16% 400 400
14% 14%
350 350
12% 12%
300 300
10% 10%
8% 8% 250 250
Forecast
6% 6%
200 200
4% 4%
CRB Index: Feb @ 219.3
150 150
2% 2%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
0% 0%
Source: Bloomberg L.P., Federal Reserve Board, Global Insight,
1995 1998 2001 2004 2007 2010
International Monetary Fund and Wachovia
6
Dollar Exchange Rates US Trade Weighted Dollar Major Index

March 1973=100
115 115
110 110
The trade-weighted value of the U.S. dollar fell nearly 40%
between February 2002 and March 2008. A major factor 105 105
depressing the value of the dollar was the sharp increase 100 100
in the U.S. current account deficit. In addition, dislocations 95 95
in credit markets have caused foreign investors to buy
90 90
fewer U.S. securities.
85 85
However, the dollar has rallied significantly since mid- 80 80

July, not only vis-à-vis many major currencies but against 75 75
most emerging currencies as well. Rather than reflecting
70 70
newfound optimism regarding the outlook for the U.S. Major Currency Index: Feb @ 82.3
economy, the depreciation of foreign currencies vis-à-vis 65 65
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
the greenback is consistent with significantly weaker
growth prospects in many foreign economies.
US Trade Weighted Emerging Currency Index
Looking forward, we project that the dollar will continue 150
March 1973=100
150
to strengthen, at least in the near term. For starters, the
U.S. current account deficit should continue to narrow. In
145 145
addition, deep recessions abroad should lead foreign
central banks to cut rates further, which should help to
140 140
boost the dollar.
135 135
Looking a few quarters out, however, we do not believe
the dollar’s strength will be sustained. The recovery that
will eventually take hold in the United States likely will 130 130
not be very robust, at least not initially. The dollar did not
strengthen during the recoveries that followed the last two 125 125
recessions because the initial sluggish nature of those
Fed's "Other Important Trading Partners" Index: Feb @ 140.91
upturns prevented the Fed from tightening policy. 120 120
Likewise, we believe the Fed will be on hold for the 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
foreseeable future.
Current Account Deficit
Quarterly in Billions of Dollars, Seasonally Adjusted
$40 $40
The Dollar and Economic Cycles
Trade Weighted Dollar, Trough Indexed to 100 $0 $0
130 130
-$40 -$40
120 120
-$80 -$80
110 110
-$120 -$120
100 100
-$160 -$160
90 90
-$200 -$200
Trough @ Mar-1975
80 Trough @ Nov-1982 80 Balance on Current Account: Q3 @ $-174.1 B
Trough @ Mar-1991 -$240 -$240
Trough @ Nov-2001 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
70 70
-12 -9 -6 -3 0 3 6 9 12 15 18 21 24 27 30 33 36 Source: Bloomberg L.P., Federal Reserve Board, Global Insight,
Months from Trough
International Monetary Fund and Wachovia
7
United States Real GDP

Bars = Compound Annual Growth Rate Line = Yr/Yr Percent Change
8.0% 8.0%
U.S. real GDP dropped at an annualized rate of 3.8% in the 6.0% 6.0%
fourth quarter, the sharpest rate of contraction since 1982.

4.0% Forecast 4.0%
The unexpected rise in inventories in the fourth quarter
prevented the downturn from being more pronounced. 2.0% 2.0%
However, real GDP will probably slump even faster in the
0.0% 0.0%
first quarter as inventories are worked off.
-2.0% -2.0%
The U.S. economy could very well be in the midst of its
-4.0% -4.0%
deepest recession in the post-World War II era. Spending
on equipment and software in the fourth quarter plunged -6.0% -6.0%
GDPR - CAGR: Q4 @ -3.8%
at the sharpest rate in 50 years, and orders data point in GDPR - Yr/Yr Percent Change: Q4 @ -0.2%
the direction of further declines. Residential construction -8.0% -8.0%
remains in freefall. Consumer spending has contracted for 2000 2002 2004 2006 2008 2010
two consecutive quarters, and mounting job losses will

keep consumers stressed. Exports fell sharply in the fourth Real NonResidential Business Fixed Investment
quarter due to deep recessions in many of America’s most Bars = Seasonally Adjusted Annual Rate Line = Yr/Yr % Change
25% 25%
important trading partners. Fixed Investment: Q4 @ -19.1%
20% Fixed Investment: Q4 @ -4.4% 20%
The collapse in energy prices has caused the overall rate of 15% 15%
CPI inflation to drop sharply over the past few months.
10% 10%
The core rate of inflation is receding, but not as quickly as
the overall CPI inflation rate. 5% 5%
0% 0%
The direct lending programs that have been put in place
by the U.S. Treasury and the Fed have helped to stabilize -5% -5%
the financial system and, thereby, have reduced a large -10% -10%
downside risk to U.S. economic prospects. However, the
-15% -15%
financial system is not out of the woods yet, and lending
likely will remain very constrained until banks begin to -20% -20%
rebuild their capital bases. Therefore, the recovery that 1996 1998 2000 2002 2004 2006 2008
should begin in the second half of 2009 likely will be
muted. Nonfarm Employment Change
Change in Employment, In Thousands
500 500
CPI vs. Core CPI
6% 6% 300 300
5% 5% 100 100
4% 4% -100 -100
3% 3% -300 -300
2% 2% -500 -500
Nonfarm Employment Change: Jan @ -598,000

1% 1% -700 -700
CPI: Dec @ 0.1% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Core CPI: Dec @ 1.8%
0% 0%
Source: U.S. Department of Commerce, U.S. Department of Labor and
92 94 96 98 00 02 04 06 08
Wachovia
8
Euro-zone Euro-zone Real GDP

Bars = Compound Annual Rate Line = Yr/Yr % Change
5.0% 5.0%
After two consecutive quarters of declines in real GDP, the

4.0% 4.0%
Euro-zone is in recession. The recession appears to have
gotten worse in the fourth quarter as the purchasing
3.0% 3.0%
managers’ indices for the manufacturing and service sectors
plunged to all-time lows. (The series began in 1997.) Our
2.0% 2.0%
forecast projects that the Euro-zone economy will remain in
recession through the third quarter of this year, and the
peak-to-trough decline in real GDP will total about 3%. 1.0% 1.0%
Most components of demand appear to be in full-blown 0.0% 0.0%

Compound Annual Growth: Q3 @ -0.8%
retreat at present. Consumer spending is contracting as Year-over-Year Percent Change: Q3 @ 0.6%
consumer confidence has tumbled to a record low. (The -1.0% -1.0%
series begins in 1985.) Business fixed investment spending 2000 2001 2002 2003 2004 2005 2006 2007 2008
remains weak. The ongoing global recession will keep a lid

on export growth for much of this year. Euro-zone Purchasing Manager Indices
Index
65 65
The overall rate of CPI inflation in the Euro-zone shot up to
4% this summer. However, CPI inflation is receding 60 60
quickly, which has given the ECB scope to ease monetary
policy. Though the bank left rates unchanged at 2.00% 55 55
earlier this month, the ECB has cut rates by 175 bps since
October, and a cut in March seems likely. By summer, we 50 50
z`
look for the main Euro-zone policy rate to reach 1.00%.

45 45
The previously high-flying euro has declined sharply

40 40
against the dollar as the outlook for the Euro-zone economy
has deteriorated significantly. We project that the euro will
35 35
trend lower against the greenback in the next few quarters E.Z. Manufacturing: Jan @ 34.4
E.Z. Services: Jan @ 42.5
as the ECB continues to cut rates. Further out, however, the 30 30
euro could stage a comeback against the dollar as sluggish 1998 2000 2002 2004 2006 2008
economic growth in the United States keeps U.S. interest
rates very low for an extended period.
Euro-zone Interest Rates
6.00% 6.00%
Euro-zone Exchange Rate
USD per EUR
1.70 1.70
5.00% 5.00%
1.60 1.60
1.50 1.50 4.00% 4.00%
1.40 1.40
1.30 1.30 3.00% 3.00%
1.20 1.20
2.00% 2.00%
1.10 1.10
Euro-zone 2 Year Govt Bond: Feb @ 1.39%
1.00 1.00 ECB Policy Rate: Feb @ 2.00%
1.00% 1.00%
0.90 0.90
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Euro-Dollar: Feb @ 1.294
0.80 0.80
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Sources: Global Insight, Bloomberg LP and Wachovia
9
Germany German Real GDP

7.0% 7.0%
6.0% 6.0%
After contracting at an annualized rate of 1.7% in the Year-over-Year Percent Change: Q3 @ 0.8%
second quarter, real GDP in Germany declined 2.1% in the 5.0% 5.0%
third quarter, the largest quarterly decline in twelve years. 4.0% 4.0%
In short, the German economy is definitively in recession.
3.0% 3.0%
2.0% 2.0%
The downturn appears to be worsening. The Ifo index of
German business sentiment, which is highly correlated 1.0% 1.0%
with growth in industrial production, plunged to an all- 0.0% 0.0%

time low in December, before edging up a bit in January. -1.0% -1.0%
(The pan-German series began in 1991.) Industrial
-2.0% -2.0%
production in December plunged 12% relative to the same
month in 2007, the fastest pace of contraction on record. -3.0% -3.0%
2000 2001 2002 2003 2004 2005 2006 2007 2008
(The series began in 1992) We look for a peak-to-trough
decline in real GDP of 3.5% in the current cycle, a deep
recession by any measure. German Production Indicators
Index, Year-over-Year Percent Change
120 10.0%
Unemployment trended lower earlier in this cycle,
dropping to its lowest rate since the early 1990s. However, 115 7.5%
the recent freefall in the economy has manifested itself in
110
rising unemployment in January. Therefore, consumer 5.0%
spending, which has been the Achilles heel of the German 105
economy anyway, probably will weaken in the quarters 2.5%
ahead. 100
0.0%
95
Germany is an important supplier of capital goods to
-2.5%
central and eastern Europe. Unfortunately, most emerging 90
European economies have also slipped into deep -5.0%
85
recessions. Indeed, the value of German exports dropped Ifo Index: Jan @ 83.0 (Left Axis)
IP Year-over-Year % Chg 3-M MA: Nov @ -4.0% (Right Axis)
almost 8% in December relative to the same month 80 -7.5%
in 2007. 1996 1998 2000 2002 2004 2006 2008
German Unemployment Rate

Seasonally Adjusted
13.0% 13.0%
German Merchandise Exports
30% 30% 12.0% 12.0%
11.0% 11.0%
20% 20%
10.0% 10.0%
10% 10%
9.0% 9.0%
0% 0%
8.0% 8.0%
-10% -10% Unemployment Rate: Jan @ 7.8%

7.0% 7.0%
Merchandise Exports: Dec @ -11.7% 1997 1999 2001 2003 2005 2007 2009
3-Month Moving Average: Dec @ -6.8%
-20% -20%
1999 2001 2003 2005 2007
Source: Global Insight, Bloomberg LP and Wachovia
10
France French Real GDP

6.0% 6.0%
Compound Annual Growth: Q3 @ 0.6%
France has side-stepped consecutive quarters of 5.0% Year-over-Year Percent Change: Q3 @ 0.6% 5.0%
contraction in real GDP by virtue of a modest 0.6% gain in
4.0% 4.0%
the third quarter. However, the contraction gathered force
in the fourth quarter. Indeed, industrial production 3.0% 3.0%
plunged more than 11% in December relative to the same
2.0% 2.0%
period in 2007, the fastest pace of contraction in decades.
1.0% 1.0%
There is an external element to the downturn in France. In
0.0% 0.0%
general, French businesses have not been as aggressive as
their German counterparts in restructuring. Consequently, -1.0% -1.0%
unit labor costs have risen in France over the past few
years, which has reduced the relative price -2.0% -2.0%
2000 2001 2002 2003 2004 2005 2006 2007 2008
competitiveness of French goods. Consequently, the trade
balance in France has deteriorated over the past few years,
and real net exports have exerted a modest drag on French Industrial Production Index
growth. Year-over-Year Percent Change
8.0% 8.0%
There is an internal element to the downturn as well. 6.0% 6.0%
Growth in consumer spending weakened earlier this year 4.0% 4.0%

in response to the sharp rise in energy prices. The recent
2.0% 2.0%
credit crunch and its associated financial market turmoil
have caused consumer sentiment to weaken substantially. 0.0% 0.0%
Consumer spending fell 0.9% in December relative to the
-2.0% -2.0%
previous month. Recent deterioration in the labor market
likely will weigh on consumer spending over the next few -4.0% -4.0%
quarters.
-6.0% -6.0%
-8.0% IPI: Dec @ -11.1% -8.0%

On a peak-to-trough basis, we project that real GDP in
France will contract more than 2%, which if realized, -10.0% -10.0%
would be France’s worst recession in decades. 1997 1999 2001 2003 2005 2007
French Merchandise Trade Balance

Billions of Euros, Seasonally Adjusted
4.0 € 4.0 €
Volume of French Retail Sales 3.0 € 3.0 €
Year-over-Year Percent Change of 3-Month Moving Average
6.0 % 6.0 % 2.0 € 2.0 €
1.0 € 1.0 €
0.0 € 0.0 €
4.0 % 4.0 % -1.0 € -1.0 €
-2.0 € -2.0 €
-3.0 € -3.0 €
2.0 % 2.0 % -4.0 € -4.0 €
-5.0 € -5.0 €
-6.0 € -6.0 €
0.0 % 0.0 % -7.0 € -7.0 €
Merchandise Trade Balance: Dec @ -2.5 €
-8.0 € -8.0 €
1997 1999 2001 2003 2005 2007 2009
3-Month Moving Average: Nov @ -0.6%
-2.0 % -2.0 %
1998 2000 2002 2004 2006 2008
Source: Global Insight, Bloomberg L.P. and Wachovia
11
Italy Italian Real GDP

5.0% 5.0%
With real GDP growth in Italy negative in three out of the 4.0% 4.0%
last four quarters, the country has fallen into recession,
3.0% 3.0%
and available indicators suggest that the pace of
contraction accelerated at the end of last year. A widely 2.0% 2.0%
followed index of Italian business confidence has slumped
1.0% 1.0%
sharply over the past few months, which is consistent with
the 14% drop in industrial production in December 0.0% 0.0%
relative to the same month in 2007.
-1.0% -1.0%
Not only are the credit crunch and associated global -2.0% -2.0%
downturn weighing on Italian GDP growth, but Italy also Year-over-Year Percent Change: Q3 @ -0.9%
faces a number of structural impediments. Like their -3.0% -3.0%
2000 2001 2002 2003 2004 2005 2006 2007 2008
counterparts in France, Italian businesses have generally
not restructured aggressively over the past few years. This
has led to rising unit labor costs which have reduced the Italian and French Business Confidence
relative price competitiveness of Italian goods. If not for Index
140 140
sluggish growth in domestic demand which has helped to Italian Business Confidence: Jan @ 65.5
keep import growth constrained, the trade deficit would 130 French Business Sentiment: Jan @ 73.0 130
have widened even further than it did.
120 120
An aging population and weak growth in real income 110 110

have conspired to keep growth in consumer spending
weak over the past few years. Indeed, real growth in 100 100
personal consumption expenditures has not exceeded 2%

90 90
per annum since 2000.
80 80
On a peak-to-trough basis, we project that the Italian
70 70
economy will contract about 4%, which, if realized, would
be the worst downturn in Italy in decades. Although the 60 60
economy will not continue to contract forever, the ensuing 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
upturn probably will be muted.
Italian Merchandise Trade Balance
Billions of Euros, Seasonally Adjusted
3.0 € 3.0 €
Italian Consumer Price Index
4.5% 4.5% 2.0 € 2.0 €
4.0% 4.0%
1.0 € 1.0 €
3.5% 3.5%
0.0 € 0.0 €
3.0% 3.0%
-1.0 € -1.0 €
2.5% 2.5%
-2.0 € -2.0 €
2.0% 2.0%
Merchandise Trade Balance: Nov @ -1.7 €
1.5% 1.5% -3.0 € -3.0 €
1997 1999 2001 2003 2005 2007
CPI: Dec @ 2.4%
1.0% 1.0%
1997 1999 2001 2003 2005 2007 2009
12
Japan Japanese Real GDP

7.5% 7.5%
Real GDP in Japan contracted in both the second and third

5.0% 5.0%
quarters of 2008, indicating that the Japanese economy,
like its other G-7 counterparts, has slipped into recession.
2.5% 2.5%
And the nosedive in industrial production in the fourth
quarter indicates that the downturn in the overall
0.0% 0.0%
economy gathered even more pace. Japan is likely mired
in its deep recession since it emerged from the devastation
of the Second World War. -2.5% -2.5%
The sources of the downturn are numerous. The volume -5.0% -5.0%
of exports has weakened sharply due to deep recessions in Year-over-Year Percent Change: Q3 @ -0.3%
many of Japan’s most important trading partners. Recent -7.5% -7.5%
data on “core” machinery orders indicate that capital 2000 2001 2002 2003 2004 2005 2006 2007 2008
spending has also weakened sharply, and growth in

consumer spending, which has not been very strong over Japanese Industrial Production Index
the past few years, appears to have weakened as well. Year-over-Year Percent Change
10.0% 10.0%
Japan appears headed for another bout of mild deflation. 5.0% 5.0%
The year-over-year rate of CPI inflation, which rose as
high as 2.3% in July when oil prices surged, receded to 0.0% 0.0%
only 0.40% in December. Inflation probably will turn
negative at some point during the next few months. -5.0% -5.0%
-10.0% -10.0%
The Japanese yen generally continues to be strong as risk
aversion remains acute. We project the greenback will
-15.0% -15.0%
appreciate versus the yen over the next few quarters as
investors anticipate a U.S. economic recovery. However, -20.0% -20.0%
IPI: Dec @ -21.7%
the yen could strengthen anew, probably in late 2009 or
early 2010, as the muted nature of the U.S. economic -25.0% -25.0%
recovery becomes evident. 1997 1999 2001 2003 2005 2007 2009
Volume of Japanese Exports

25.0 25.0
Japanese Exchange Rate 20.0 20.0
JPY per USD
150 150 15.0 15.0
10.0 10.0
140 140
5.0 5.0
130 130 0.0 0.0
-5.0 -5.0
120 120
-10.0 -10.0
110 110 -15.0 -15.0
-20.0 -20.0
100 100
-25.0 -25.0
Volume of Japanese Exports: Dec @ -24.4
90 90 -30.0 -30.0
JPY per USD: Feb @ 91.9 1996 1998 2000 2002 2004 2006 2008
80 80
1995 1997 1999 2001 2003 2005 2007 2009
13
United Kingdom U.K. Real GDP

6.0% 6.0%
Real GDP in the United Kingdom contracted at an 4.0% 4.0%

annualized rate of 5.9% in the fourth quarter, the sharpest
rate of contraction since the second quarter of 1980. 2.0% 2.0%
Purchasing managers’ indices remained at very low levels
in January, indicating that the economy likely contracted 0.0% 0.0%
further in the start of the first quarter.

-2.0% -2.0%
We look for the peak-to-trough decline in U.K. real GDP to -4.0% -4.0%
exceed 3%, which would make the current downturn
more severe than the recession in the early 1990s. The -6.0% -6.0%
sharp rise in house prices over the past decade has led to a Year-over-Year Percent Change: Q4 @ -1.8%
significant build-up in consumer debt, and these -8.0% -8.0%
imbalances will need to be worked off over the next few 2000 2002 2004 2006 2008
years. Thus, the upturn, when it comes, will likely be

rather muted. UK Purchasing Managers Indices
Diffusion Indices
65 65
At 3.1% currently, CPI inflation is above the 2% target the
Bank of England (BoE) is mandated to achieve in the 60 60
“medium term.” However, inflation is receding rapidly
55 55
and it probably will slip into negative territory by
summer. The Bank of England has cut rates by 350 bps 50 50
since October and, in our view, it will take its policy rate
down to only 0.50% soon. 45 45
40 40
Sterling has tumbled vis-à-vis the greenback over the past
few months as the British economic outlook has 35 35
deteriorated. Looking ahead to the next few quarters, we UK Services: Jan @ 42.5
30 30
project that sterling will weaken a bit further against the UK Construction: Jan @ 34.5
UK Manufacturing: Jan @ 35.8
greenback as the BoE continues to cut rates. Further out, 25 25
however, sterling could stage a comeback against the 2000 2002 2004 2006 2008
dollar as sluggish economic growth in the United States
keeps U.S. interest rates very low for an extended period. U.K. Consumer Price Index
6.0% 6.0%
U.K. Exchange Rates
USD per GBP
2.200 2.200 5.0% 5.0%
4.0% 4.0%
2.000 2.000
3.0% 3.0%
1.800 1.800
2.0% 2.0%
1.600 1.600
1.0% 1.0%
CPI: Dec @ 3.1%

1.400 1.400
0.0% 0.0%
1997 1999 2001 2003 2005 2007 2009
USD per GBP: Jan @ 1.423
1.200 1.200
1999 2001 2003 2005 2007 2009
14
Canada Canadian Real GDP

6.0% 6.0%
Monthly real GDP in Canada has contracted for two

consecutive months. Even though the Canadian economy
4.0% 4.0%
grew at an annualized rate of 1.3% in the third quarter,
real GDP likely contracted at an annualized rate of
roughly 3% in the fourth quarter. Given the worsening
2.0% 2.0%
outlook for the global economy, it does not seem
reasonable that Canadian exports will be adding
substantively to growth, at least in the near-future.
0.0% 0.0%
Retail sales for November were down and probably will

weaken further as consumers trim spending. Consumers Year-over-Year Percent Change: Q3 @ 0.5%
aren’t the only ones cutting back. The Ivey purchasing -2.0% -2.0%
managers index, a key measure of business spending 2000 2001 2002 2003 2004 2005 2006 2007 2008
recently printed at 36.1 for January, well-below consensus

estimates of 40.0. Any number below 50 suggests
Canadian Unemployment Rate
contraction in business spending.
8.5% 8.5%
Canada’s labor market sustained a jaw-dropping

8.0% 8.0%
contraction of 129,000 jobs in January, as the
unemployment rate jumped to 7.2%. Though monthly
7.5% 7.5%
employment numbers have a tendency to swing rather
dramatically from month to month, a six-month moving
average, shown in the nearby chart, gives a sense of the 7.0% 7.0%
broader downward trend.

6.5% 6.5%
The Canadian dollar has been in a trading band between

about 1.18 and 1.30 since last fall. We project that the 6.0% 6.0%
loonie will stay in that range in the near term but may test
Unemployment Rate: Jan @ 7.2%
the upside limit. Further out we expect the Canadian 5.5% 5.5%
dollar will strengthen against the U.S. dollar as sluggish 2000 2002 2004 2006 2008
economic growth in the United States keeps U.S. interest
rates very low for some time. Canadian Retail Sales
12.0% 12.0%
Canadian Exchange Rate Retail Sales: Nov @ -0.4%
CAD per USD 10.0% 6-Month Moving Average: Nov @ 3.6% 10.0%
1.700 1.700
1.600 1.600 8.0% 8.0%
1.500 1.500
6.0% 6.0%
1.400 1.400
4.0% 4.0%
1.300 1.300
2.0% 2.0%
1.200 1.200
0.0% 0.0%
1.100 1.100
1.000 1.000 -2.0% -2.0%

Exchange Rate: Feb @ 1.226 1997 1999 2001 2003 2005 2007
0.900 (L f A i ) 0.900
1990 1993 1996 1999 2002 2005 2008
15
Australia Australian Real GDP

10% 10%
The Australian economy has grown continuously since 8% 8%

2001. Australia is more dependent on the extraction of
natural resources than most other major economies. The 6% 6%
significant increase in commodity prices between 2003 and
2008 improved the country’s terms of trade, which 4% 4%
boosted growth in real income. The decline in

2% 2%
unemployment, which fell in 2008 to the lowest rate in
decades, helped to underpin strong growth in consumer 0% 0%
spending.
-2% -2%
However, real GDP growth down-under has slowed over Year-over-Year Percent Change: Q3 @ 1.9%
the past few quarters. Not only did previous monetary -4% -4%
2000 2001 2002 2003 2004 2005 2006 2007 2008
tightening weigh on growth in domestic demand, but real
income has been eroded by the collapse in commodity
prices. Australian Retail Sales
10% 10%
The Reserve Bank of Australia (RBA) tightened policy in
2007 and early 2008 due to rising inflation. However, the
sharp deterioration in the global economy will cause CPI 8% 8%
inflation in Australia to recede in the quarters ahead.
Consequently, the RBA has slashed its main policy rate by
6% 6%
400 bps since early September, and it has room to ease
further if conditions warrant.
4% 4%
The Australian dollar has dropped more than 30% on
balance against the greenback since last summer as
2% 2%
commodity prices have collapsed. In the near term, the
3-Month Moving Average: Dec @ 3.3%
Aussie dollar likely will weaken a bit further as the RBA
Retail Sales: Dec @ 5.6%
continues to ease policy. Looking further out, however, 0% 0%
the Aussie dollar could strengthen anew as investors 1998 2000 2002 2004 2006 2008
begin to feel better about global growth prospects.
Central Bank Policy Rates
8.0% 8.0%
Australian Exchange Rate and CRB Index Reserve Bank of Australia: Feb @ 3.25%
7.0% US Federal Reserve: Feb @ 0.25% 7.0%
USD per AUD, Index
1.000 500.0
AUD Exchange Rate: Feb @ 0.67 (Left Axis)
CRB Index: Feb @ 214.7 (Right Axis) 6.0% 6.0%
450.0
0.900
5.0% 5.0%
400.0
0.800 4.0% 4.0%
350.0
3.0% 3.0%
0.700
300.0 2.0% 2.0%
0.600
250.0 1.0% 1.0%
0.500 0.0% 0.0%

200.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
0.400 150.0
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
16
Norway Norwegian Real GDP

7.5% 7.5%
Real GDP in Norway contracted at an annualized rate of 6.0% 6.0%

2.8% between the second and third quarters, the first
negative outturn in more than two years. Norway is a 4.5% 4.5%
major producer of crude oil, and export volumes fell
sharply in the third quarter. In addition, consumer 3.0% 3.0%
spending plummeted 2.5%, the largest quarterly decline

1.5% 1.5%
since the first quarter of 2003.
0.0% 0.0%
Many monthly indicators, including data on industrial
production and retail sales, suggest that the economy -1.5% -1.5%
Mainland GDP : Q3 @ 2.7%
probably contracted further in the fourth quarter. Overall GDP: Q3 @ 0.6%
-3.0% -3.0%
2000 2001 2002 2003 2004 2005 2006 2007 2008
As in many countries, CPI inflation in Norway rose to
multi-year highs last year. However, inflation is receding
rapidly and Norges Bank, the country’s central bank, is Volume of Norwegian Retail Sales
scrambling to get rates down to more appropriate levels. 10%
10%
Indeed, Norges Bank has cut its main policy rate by
325 bps since mid-October, and policymakers have
8% 8%
acknowledged that “the downturn in the Norwegian
economy may be deeper and more prolonged than Norges
6% 6%
Bank has assumed.” Therefore, rates may be cut further in
the months ahead.
4% 4%
The Norwegian krone has lost about 30% of its value

versus the U.S. dollar since last summer as economic 2% 2%
growth in Norway has weakened. We look for the krone

to fall further in the first half of the year as the Norwegian 0% 0%
economy slogs through recession and oil prices remain 3-Month Moving Average: Dec @ -0.4%
depressed. However, the krone could begin to strengthen -2% -2%
later this year as investors begin to anticipate global 1998 2000 2002 2004 2006 2008
recovery.
Norwegian Consumer Price Index
6% 6%
Norwegian Krone Exchange Rate
NOK per USD
10.000 10.000
4% 4%
9.000 9.000
8.000 8.000 2% 2%
7.000 7.000
0% 0%
6.000 6.000
CPI: Dec @ 2.1%

5.000 5.000 -2% -2%
1997 1999 2001 2003 2005 2007 2009
NOK per USD: Feb @ 6.766
4.000 4.000
1999 2001 2003 2005 2007 2009
17
Sweden Swedish Real GDP

7.0% 7.0%
Year-over-Year Percent Change: Q3 @ 0.3%
Swedish real GDP contracted modestly in the second and 6.0% 6.0%
third quarters of 2008, suggesting that the economy
5.0% 5.0%
slipped into recession last year. Unfortunately, it appears
that the economy contracted at a much faster pace at the 4.0% 4.0%
end of the year. For example, industrial production in the
3.0% 3.0%
fourth quarter plunged more than 12%, the most severe
year-over-year rate of contraction in decades. 2.0% 2.0%
1.0% 1.0%
Not only have exports taken a hit, but consumer spending
is weakening as well. The value of retail sales fell 1.5% 0.0% 0.0%
(not annualized) in the fourth quarter relative to the
-1.0% -1.0%
previous quarter. Employment growth, which exceeded
2000 2001 2002 2003 2004 2005 2006 2007 2008
2% per annum back in the heydays of 2006-07, has slipped
into negative territory.
Swedish Industrial Production Index
The Swedish Riksbank, the country’s central bank, has Year-over-Year Percent Change
10% 10%
slashed rates by 375 bps since mid-October. Although the
policy rate currently stands at only 1.00%, rates will
probably be cut further in the months ahead due to the 5% 5%
very sharp deterioration in Swedish growth prospects.

0% 0%
The Swedish krona has weakened about 30% against the
U.S. dollar since mid-July due to the sharp deterioration in
the Swedish economic outlook that has occurred since -5% -5%
then. Looking forward, we project that the krona will

weaken a bit further versus the greenback as the Swedish -10% -10%
economy remains mired in recession. However, the krona
IPI: Dec @ -18.3%
could begin to strengthen later this year vis-à-vis the 3-Month Moving Average: Dec @ -12.6%
dollar due to the sluggish nature of the U.S. economic -15% -15%
recovery that we project. n
1997 1999 2001 2003 2005 2007
Swedish Retail Sales

10% 10%
Swedish Exchange Rate Retail Sales: Dec @ -1.0%
SEK per USD
12.00 12.00 8% 8%
11.00 11.00
6% 6%
10.00 10.00
4% 4%
9.00 9.00
2% 2%
8.00 8.00
0% 0%
7.00 7.00
6.00 6.00 -2% -2%

SEK per USD: Feb @ 8.099 1997 1999 2001 2003 2005 2007
5.00 5.00
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
18
Switzerland Swiss Real GDP

6.0% 6.0%
Real GDP in Switzerland was essentially flat in the third

quarter relative to the previous quarter. However, it 4.0% 4.0%
would be premature to claim that Switzerland has escaped

the fate of most other major economies, namely, recession.
2.0% 2.0%
Indeed, the manufacturing PMI fell off a cliff at the end of
last year, suggesting that overall GDP growth likely
turned negative. 0.0% 0.0%
Exports have fallen sharply over the past few months, but -2.0% -2.0%
it appears that consumer spending is holding up fairly Compound Annual Growth: Q3 @ 0.1%
well, at least at this point. However, the unemployment Year-over-Year Percent Change: Q3 @ 1.7%
-4.0% -4.0%
rate rose from a 6-year low of 2.5% last summer to 2.8% in
2000 2001 2002 2003 2004 2005 2006 2007 2008
December. With labor market conditions deteriorating, it
seems only a matter of time before consumer spending
weakens as well. Swiss Unemployment Rate
Seasonally Adjusted
4.0% 4.0%
CPI inflation in Switzerland has receded sharply over the
past few months, giving the Swiss National Bank (SNB)
scope to cut rates by 225 bps since early October. Indeed, 3.5% 3.5%
the SNB’s target for the 3-month LIBOR rate stands at only
0.50% at present.
3.0% 3.0%
The Swiss franc has depreciated almost 15% on balance

against the dollar since mid-summer as the outlook for the 2.5% 2.5%
Swiss economy has deteriorated. In the near term, the
dollar probably will strengthen further as investors
2.0% 2.0%
anticipate recovery in the U.S. economy. However, we
believe the greenback will give up its gains further out in
Unemployment Rate: Jan @ 2.9%
our forecast period as the sluggish nature of the U.S. 1.5% 1.5%
recovery becomes painfully apparent. 2001 2002 2003 2004 2005 2006 2007 2008 2009
Swiss Consumer Price Index

3.5% 3.5%
Swiss Exchange Rate
CHF per USD 3.0% 3.0%
1.900 1.900
1.800 1.800 2.5% 2.5%
1.700 1.700 2.0% 2.0%

1.600 1.600
1.5% 1.5%
1.500 1.500
1.0% 1.0%
1.400 1.400
1.300 1.300 0.5% 0.5%
1.200 1.200
0.0% 0.0%
1.100 1.100 CPI: Jan @ 0.2%
-0.5% -0.5%
1.000 1.000
1997 1999 2001 2003 2005 2007 2009
CHF per USD: Feb @ 1.163
0.900 0.900
2001 2002 2003 2004 2005 2006 2007 2008 2009
19
Brazil Brazilian Real GDP

12% 12%
The Brazilian economy seemed like it bucked the global 9% 9%

trend of weakening growth last year, with real GDP rising
more than 7% in the third quarter of 2008. However, the 6% 6%
economy appears to have hit an air-pocket in the fourth
quarter as industrial production plunged 15.5% in 3% 3%
December.
0% 0%
The unfolding global recession appears to be contributing -3% -3%

to the slowdown in Brazil. The volume of Brazilian
exports fell nearly 9% in the fourth quarter relative to the -6% -6%
same quarter in 2007. However, growth in domestic Year-over-Year Percent Change: Q3 @ 7.1%
demand also is weakening. Growth in real retail sales -9% -9%
slowed to 5.1% in November, a respectable rate indeed but 2000 2001 2002 2003 2004 2005 2006 2007 2008
the slowest pace in more than two years.

Brazilian Industrial Production Index
Rising food and oil prices pushed up the rate of CPI 15%
15%
inflation earlier last year. However, inflation is now
starting to recede due to the collapse in energy prices since 10% 10%
last summer and slowing growth in Brazil. Therefore, the
central bank cut its policy rate by 100 bps in January, the 5% 5%
first reduction in more than a year. Further easing in the
months ahead seems likely. 0% 0%
-5% -5%
The Brazilian real has depreciated more than 30% since it
rose to a nine-year high versus the dollar in August. -10% -10%
Looking to the foreseeable future, we project that the real
will weaken somewhat further vis-à-vis the greenback as -15% -15%
the outlook for the Brazilian economy remains clouded. IPI: Dec @ -15.5%
However, the real could strengthen anew later this year as -20% -20%
the Brazilian economy recovers at a faster rate than the 1997 1999 2001 2003 2005 2007 2009
U.S. economy.
Brazilian Policy Rate
30% 30%
Brazilian Exchange Rate
BRL per USD
4.00 4.00
25% 25%
3.50 3.50
3.00 3.00 20% 20%
2.50 2.50
15% 15%
2.00 2.00
1.50 1.50 Policy Rate: Feb @ 12.66%

10% 10%
BRL per USD: Feb @ 2.258 2000 2001 2002 2003 2004 2005 2006 2007 2008
1.00 1.00
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
20
China Chinese Real GDP

14.0% 14.0%
The Chinese economy has slowed noticeably over the past 12.0% 12.0%
six quarters. From a 13-year high of 12.8% in the second
quarter of 2007, the year-over-year growth rate slowed to 10.0% 10.0%
only 6.8% in the fourth quarter of 2008, the slowest rate in
nine years. 8.0% 8.0%
6.0% 6.0%
The downturn in the rest of the world is having a
deleterious effect on the Chinese economy. Export s 4.0% 4.0%
tumbled more than 17% (year-over-year) in January, in
line with declines posted during the painful Asian 2.0% 2.0%
economic crisis of the late 1990s. Growth in consumer Year-over-Year Percent Change: Q4 @ 6.8%
spending has held up better, but it too is starting to show 0.0% 0.0%
signs of deceleration as well. 2000 2002 2004 2006 2008
The Chinese economy will likely expand in 2009 at its Chinese Trade
slowest pace in almost 20 years. However, policymakers 60.0%
Year-over-Year Percentage Change, 3-Month Moving Average
60.0%
have been quick to respond to the obvious slowdown in Exports: Dec @ 4.7%
the economy. The central bank has cut its benchmark Imports: Dec @ -8.0%
50.0% 50.0%
lending rate by more than 200 bps since mid-September,
and the central government has announced plans to 40.0% 40.0%
accelerate infrastructure spending. Expansionary
macroeconomic policy should help to support economic 30.0% 30.0%
activity.
20.0% 20.0%
The Chinese renminbi, which had gradually strengthened 10.0% 10.0%

versus the dollar starting in mid-2005, has been essentially
stable since last July. We believe that Chinese authorities 0.0% 0.0%
will permit very little appreciation of the renminbi
between now and the end of the year. However, the -10.0% -10.0%
Chinese currency likely will resume its appreciation next 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
year as the Chinese economy begins to strengthen.
Chinese Retail Sales
30.0% 30.0%
Chinese Exchange Rate
CNY per USD
8.50 8.50 25.0% 25.0%
8.25 8.25
20.0% 20.0%
8.00 8.00
15.0% 15.0%
7.75 7.75
7.50 7.50 10.0% 10.0%
7.25 7.25
5.0% 5.0%
7.00 7.00 Retail Sales: Nov @ 20.8%
6-Month Moving Average: Nov @ 22.6%
0.0% 0.0%
6.75 6.75
1997 1999 2001 2003 2005 2007
CNY per USD: Feb @ 6.83
6.50 6.50
2005 2006 2007 2008 2009
21
India Indian Real GDP

12.0% 12.0%
Economic growth in India has moderated over the last few

quarters. The 7.6% GDP growth rate registered in the third
9.0% 9.0%
quarter was the slowest pace of expansion in four years.
Unfortunately, the 2% decline in industrial production in
December (year-over-year change) suggests that overall
6.0% 6.0%
GDP growth slowed further at the end of last year.
India is not a manufacturing powerhouse like China, but

3.0% 3.0%
Indian producers have been hit hard by the global
downturn. The value of Indian exports in the fourth
quarter was off about eight% relative to the same period in Year-over-Year Percent Change: Q3 @ 7.6%
0.0% 0.0%
2007. In addition, it appears that consumer spending
2000 2002 2004 2006 2008
weakened in the fourth quarter as well. For example, auto
sales in the fourth quarter were down 16% on a year-over-
year basis. Indian Industrial Production Index
15.0% 15.0%
Sharp increases in food and energy prices earlier this year
helped to push up CPI inflation, which is only now 12.5% 12.5%
starting to recede. However, wholesale price inflation has
tumbled sharply since last summer, meaning that further 10.0% 10.0%
declines in CPI inflation should follow. In response to
slower economic growth and easing inflationary 7.5% 7.5%
pressures, the Reserve Bank of India has cut its main

5.0% 5.0%
policy rate by 350 bps since mid-October.
2.5% 2.5%
The Indian rupee fell to an all-time low versus the dollar
late last year as the global credit crunch intensified. In the 0.0% 0.0%
near term, the rupee could weaken a bit more as prospects
for the Indian economy, and more broadly the global -2.5% -2.5%
economy, remain clouded. However, the rupee could 1997 1999 2001 2003 2005 2007
begin to claw its way back later this year as economic
growth in India begins to strengthen. Indian Consumer Price Index
20% 20%
Indian Exchange Rate CPI: Dec @ 9.7%
INR per USD
51.00 51.00
15% 15%
49.00 49.00
47.00 47.00
10% 10%
45.00 45.00
43.00 43.00
5% 5%
41.00 41.00
39.00 39.00 0% 0%
INR per USD: Feb @ 48.616 1997 1999 2001 2003 2005 2007
37.00 37.00
2000 2002 2004 2006 2008
22
Mexico Mexican Real GDP

7.0% 7.0%
Mexican real GDP rose only 1.6% in the third quarter, the 6.0% 6.0%
slowest year-over-year growth rate since the recession in
the early years of this decade. The 5.4% decline in Mexican 5.0% 5.0%
industrial production that occurred in November suggests
that the year-over-year rate of GDP growth may have 4.0% 4.0%
turned negative in the fourth quarter.

3.0% 3.0%
The slowdown in the United States, to which 85% of 2.0% 2.0%

Mexico’s exports are destined, is the primary reason why
the Mexican economy appears to be sliding into recession. 1.0% 1.0%
The total value of Mexican exports tumbled 20% in
December. In addition, fewer remittances by Mexican 0.0% 0.0%
workers in the United States may also be exerting a 2004 2005 2006 2007 2008
slowing effect on the Mexican economy.

Mexican Merchandise Trade Balance
The overall rate of CPI inflation edged down from 6.5% in $1,500
Millions of USD, Not Seasonally Adjusted
$1,500
December to 6.3% in January. Although inflation remains
$1,000 $1,000
well above the Bank of Mexico’s target of 3%, the recent
decline and prospects of more to come due to economic $500 $500
weakness allowed the Bank to cut its policy rate by 50 bps $0 $0
on January 16. The Bank will probably ease policy further
-$500 -$500
in the months ahead.
-$1,000 -$1,000
The Mexican peso recently plunged to an all-time low -$1,500 -$1,500

versus the dollar as prospects for economic growth in -$2,000 -$2,000
Mexico have deteriorated. In our view, the peso will
-$2,500 -$2,500
remain on the ropes until investors have more visibility
-$3,000 Merchandise Trade Balance: Dec @ -$2,067 -$3,000
regarding growth prospects in Mexico. However, we look
12-Month Moving Average: Dec @ -$1,403
for the peso to strengthen later this year as the outlook for -$3,500 -$3,500
the Mexican economy starts to brighten somewhat. 1997 1999 2001 2003 2005 2007
Mexican Consumer Price Index

12% 12%
Mexican Exchange Rate
MXN per USD
15.00 15.00
10% 10%
14.00 14.00
8% 8%
13.00 13.00
12.00 12.00 6% 6%
11.00 11.00
4% 4%
10.00 10.00
CPI: Jan @ 6.3%

9.00 9.00 2% 2%
MXN per USD: Feb @ 14.21 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
8.00 8.00
1999 2001 2003 2005 2007 2009
23
Poland Polish Real GDP

9.0% 9.0%
Real GDP growth in Poland slipped to 4.8% in the third
quarter, the slowest year-over-year growth rate in about
three years. Industrial production fell 4.6% (year-over-
6.0% 6.0%
year) in the fourth quarter, the sharpest downturn since
statistics became available in 1994, suggesting that overall
GDP growth slowed even further in the fourth quarter.
3.0% 3.0%
As in most countries, the overall rate of CPI inflation shot
higher this year, which led the National Bank of Poland
(NBP) to tighten monetary policy. However, CPI inflation
has receded over the past few months, and further
declines seem likely due to the sharp drop in energy prices 0.0% 0.0%
and economic weakness. In response, the NBP has cut its 1995 1997 1999 2001 2003 2005 2007
main policy rate by 175 bps since late November.

Polish Merchandise Trade Balance
Poland continues to incur a significant trade deficit. The $0
$0
current account deficit has swelled from less than 2% of
-$1,000 -$1,000
GDP in 2005 to roughly 4% currently. Foreign direct
-$2,000 -$2,000
investment has financed much of Poland’s current account
deficit over the past few years, but with the global -$3,000 -$3,000
economy slipping into its worst recession in decades it -$4,000 -$4,000

seems likely that FDI will weaken somewhat in the -$5,000 -$5,000
quarters ahead.
-$6,000 -$6,000
-$7,000 -$7,000
The Polish zloty has lost about 40% of its value against the
-$8,000 -$8,000
dollar since mid-July as the Polish economic outlook has
deteriorated and as investors have questioned the -$9,000 -$9,000
resilience of FDI inflows. We forecast that the zloty will -$10,000

Merchandise Trade Balance: Nov @ -$8,340 M
-$10,000
depreciate further in the near term. However, the zloty -$11,000 -$11,000
could rebound versus the greenback later this year as 1997 1999 2001 2003 2005 2007
Polish economic prospects begin to improve.
Polish Consumer Price Index
12.0% 12.0%
Polish Exchange Rate CPI: Dec @ 3.3%
PLN per USD
5.000 5.000 10.0% 10.0%
4.500 4.500
8.0% 8.0%
4.000 4.000
6.0% 6.0%
3.500 3.500
4.0% 4.0%
3.000 3.000
2.0% 2.0%
2.500 2.500
2.000 2.000 0.0% 0.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008
USD per PLN: Feb @ 3.501
1.500 1.500
1999 2001 2003 2005 2007 2009
24
Russia Russian Real GDP

10% 10%
Russian GDP rose 6.2% in the third quarter of 2008, the 9% 9%

slowest year-over-year growth rate in three years.
Moreover, industrial production declined 10.3% in 8% 8%
December, which is probably the sharpest contraction

7% 7%
since the economic crisis of 1998-99.
6% 6%
Indeed, Russia is suffering through a financial crisis of
sorts at present. During the oil price boom of the past few 5% 5%
years the Russian economy was booming. Russian banks
became very leveraged and funded themselves via capital 4% 4%
inflows from abroad. However, the global credit crunch Year-over-Year Percent Change: Q3 @ 6.2%
3% 3%
has led to significant strains in the Russian banking
2001 2002 2003 2004 2005 2006 2007 2008
system that has led to the sharp downturn in the Russian
economy.
Russian Merchandise Trade Balance
CPI inflation, which shot up to a six-year high last $20
Billions of USD, Seasonally Adjusted
$20
summer, is starting to recede due in part to the marked Merchandise Trade Balance: Dec @ $4.6
$18 $18
decline in oil prices. However, lower oil revenues have
caused Russian trade surplus to shrink rapidly. The $16 $16
central bank still has ample foreign exchange reserves $14 $14
(almost $400 billion), but the level of reserves has dropped
$12 $12
more than $200 billion since late July.
$10 $10
The Russian ruble has lost about 35% of its value against $8 $8
the dollar since mid-July as Russian banks have scrambled $6 $6

for dollar funding. In our view, the Russian currency
$4 $4
could fall even further in the near term. Sooner or later,
$2 $2
however, the currency will bounce, and we look for the
ruble to gradually appreciate later this year as the storm $0 $0
raging in Russian financial markets begins to subside. 1999 2001 2003 2005 2007
Russian Consumer Price Index

20.0% 20.0%
Russian Exchange Rate
RUB per USD
38.000 38.000
36.000 36.000
15.0% 15.0%
34.000 34.000
32.000 32.000
30.000 30.000 10.0% 10.0%
28.000 28.000
26.000 26.000
CPI: Jan @ 13.4%
24.000 24.000 5.0% 5.0%
RUB per USD: Feb @ 36.222 2002 2003 2004 2005 2006 2007 2008 2009
22.000 22.000
2001 2002 2003 2004 2005 2006 2007 2008
25
Singapore Singapore Real GDP

15.0% 15.0%
Real GDP in Singapore fell 3.7% in the fourth quarter, the

sharpest rate of contraction since the “tech” recession 10.0% 10.0%
earlier this decade. A break down of real GDP in the

fourth quarter into its underlying demand components is
5.0% 5.0%
not yet available. However, monthly data show that
growth in export volumes slipped into negative territory
during the fourth quarter for the first time in seven years. 0.0% 0.0%
Singapore has one of the most open economies in the
world, and slower export growth weighs significantly on
-5.0% -5.0%
economic activity in the city-state.
Year-over-Year Percent Change: Q4 @ -3.7%
The downturn in export growth has caused the -10.0% -10.0%
unemployment rate to rise modestly over the past few 2000 2002 2004 2006 2008
months. Although growth in real consumer spending

showed few signs of slowing through the third quarter of Singapore Volume of Imports and Exports
last year, deterioration in labor market conditions should 3-Month Moving Average, Year-over-Year Percent Change
50.0% 50.0%
lead to weaker growth in consumer spending over the
next few quarters.
30.0% 30.0%
CPI inflation shot up earlier this year due to the
combination of an increase in the goods and service tax
and higher food and energy prices. However, the year-
over-year rate of CPI inflation is now starting to recede. 10.0% 10.0%
Because the city-state is such an open economy, the

Monetary Authority of Singapore manages the exchange -10.0% -10.0%
value of the Singapore dollar versus a basket of currencies.

The generalized rise of the U.S. dollar since last summer Real Exports: Dec @ -7.1%
Real Imports: Dec @ 0.2%
has translated into an appreciation of the greenback vis-à- -30.0% -30.0%
vis the Singapore dollar. Although the greenback probably 1996 1998 2000 2002 2004 2006 2008
will strengthen further in the near term, we look for the
Singapore dollar to regain its footing later this year. Singapore Consumer Price Index
8.0% 8.0%
Singapore Exchange Rate 7.0% 7.0%
SGD per USD
1.900 1.900
6.0% 6.0%
5.0% 5.0%
1.800 1.800
4.0% 4.0%
1.700 1.700 3.0% 3.0%
2.0% 2.0%
1.600 1.600
1.0% 1.0%
0.0% 0.0%
1.500 1.500
-1.0% -1.0%
CPI: Dec @ 4.3%
1.400 1.400 -2.0% -2.0%
1997 1999 2001 2003 2005 2007 2009
SGD per USD: Feb @ 1.495
1.300 1.300
1997 1999 2001 2003 2005 2007 2009
26
South Africa South African Real GDP

7.5% 7.5%
Real GDP in South Africa rose only 3.0% in the third

quarter, the slowest year-over-year growth rate in five
years. Unfortunately, data on industrial production,
5.0% 5.0%
which slumped more than 8% in December, suggest that
overall GDP growth weakened even further in the fourth
quarter. Although export growth has slowed over the past
few years, the most important source of the slowdown in
South Africa has been consumer spending. The sharp rise 2.5% 2.5%
in CPI inflation over the past year or so may be

contributing to slower growth in real consumer spending
via its deleterious effect on real income growth. Indeed, Compound Annual Growth: Q3 @ 0.2%
growth in real retail sales has turned negative over the 0.0% 0.0%
past few months. 2000 2001 2002 2003 2004 2005 2006 2007 2008
CPI inflation rose into double-digit territory last year, but South African Industrial Production Index
it is starting to recede rapidly. The South African Reserve Manufacturing, Year-over-Year Percent Change
15.0% 15.0%
Bank, which had been raising rates, has cut rates by
150 bps since December on the expectation that inflation
will decline further. 10.0% 10.0%
South Africa is incurring a sizeable current account deficit

5.0% 5.0%
at present (about 8% of GDP). That, along with the
previous rise in inflation, are signs that the economy was
running too hot. Significant real exchange rate 0.0% 0.0%
appreciation over the past few years has also contributed
to the blowout in South Africa’s current account deficit.
-5.0% -5.0%
The South African rand weakened sharply last autumn as IPI: Dec @ -8.2%
the global credit crunch intensified. We believe that the -10.0% -10.0%
rand will remain weak in the near term, but project that it 1999 2001 2003 2005 2007
will regain its footing later this year or early next year as
global growth prospects begin to improve. South African Consumer Price Index
15.0% 15.0%
South Africa Exchange Rate CPI: Dec @ 9.5%
Rand per USD
13.000 13.000
12.0% 12.0%
12.000 12.000
11.000 11.000 9.0% 9.0%
10.000 10.000
6.0% 6.0%
9.000 9.000
8.000 8.000 3.0% 3.0%
7.000 7.000
0.0% 0.0%
6.000 6.000
1997 1999 2001 2003 2005 2007 2009
RND per USD: Feb @ 9.566
5.000 5.000
2000 2001 2002 2003 2004 2005 2006 2007 2008
27
South Korea South Korean Real GDP

20.0% 20.0%
15.0% Year-over-Year Percent Change: Q4 @ -3.6% 15.0%
Real GDP in Korea plunged at an annualized rate of 20.8%
in the fourth quarter relative to the previous quarter, 10.0% 10.0%
nearly as bad as the contraction registered in the first
5.0% 5.0%
quarter of 1998 following the implosion of Korea’s
financial system in the autumn of 1997. 0.0% 0.0%
-5.0% -5.0%
The country’s trade surplus has disappeared as export
-10.0% -10.0%
growth has tumbled. Indeed, the value of Korea’s exports
plunged more than 30% in January relative to the same -15.0% -15.0%
month in 2008. However, growth in domestic demand has
-20.0% -20.0%
also turned negative with retail spending trade down
nearly 6% in December. Like their American counterparts, -25.0% -25.0%
consumers in Korea are rather leveraged and consumption 2000 2002 2004 2006 2008
expenditures probably will remain very weak for the

foreseeable future. South Korean Merchandise Trade Balance
Billions of USD, Not Seasonally Adjusted
$4.0 $4.0
CPI inflation, which rose to a 10-year high of 5.9% in July,
has subsequently receded sharply as energy prices have $3.0 $3.0
collapsed and as the economy has weakened markedly. $2.0 $2.0

The Bank of Korea has slashed rates by 325 bps since early
$1.0 $1.0
October. Its main policy rate currently stands at an
all-time low of 2.00% and further easing seems likely. $0.0 $0.0
-$1.0 -$1.0
The won tumbled to a 10-year low versus the dollar last
autumn as the global credit crunch intensified. The won -$2.0 -$2.0
has stabilized recently, albeit at low levels against the -$3.0 -$3.0
dollar. The won likely will remain weak in the near term
-$4.0 -$4.0
as the Korean economy continues to contract. However,
Merchandise Trade Balance: Jan @ $-3.0
the won could regain its footing and begin to strengthen -$5.0 -$5.0
later this year or early next year as Korean growth 1997 1999 2001 2003 2005 2007 2009
prospects begin to improve somewhat.
South Korean Retail Sales
17.5% 17.5%
South Korean Exchange Rate 15.0%
Retail Sales: Dec @ -5.6%
15.0%
KRW per USD 6-Month Moving Average: Dec @ -1.9%
1,500 1,500
12.5% 12.5%
10.0% 10.0%
1,400 1,400
7.5% 7.5%
1,300 1,300 5.0% 5.0%
2.5% 2.5%
1,200 1,200
0.0% 0.0%
-2.5% -2.5%
1,100 1,100
-5.0% -5.0%
1,000 1,000 -7.5% -7.5%

2001 2002 2003 2004 2005 2006 2007 2008 2009
KRW per USD: Feb @ 1,370.3
900 900
1999 2001 2003 2005 2007 2009
28
Taiwan Taiwanese Real GDP

10.0% 10.0%
Real GDP data for the last quarter of 2008 have not been
7.5% 7.5%
released yet, but the 24% decline (year-over-year rate) in
industrial production in the fourth quarter does not bode
5.0% 5.0%
well for overall GDP growth. Indeed, the 4% decline in
GDP that occurred in the third quarter of 2001 in the wake
2.5% 2.5%
of the “tech” crash could easily be surpassed.
0.0% 0.0%
Growth in Taiwan has been driven by exports over the
past few years, and the sharp downturn in the global
economy has imparted a nasty shock to the Taiwanese -2.5% -2.5%
economy. In addition, growth in domestic demand, which Year-over-Year Percent Change: Q3 @ -1.0%
already had been rather lackluster, has weakened further -5.0% -5.0%
recently. Indeed, real retail spending fell nearly 7% in the 2000 2001 2002 2003 2004 2005 2006 2007 2008
fourth quarter relative to the same period during the

preceding year. Taiwanese Industrial Production Index
40.0% 40.0%
CPI inflation, which shot up to a 14-year high of 5.8% in
July, has fallen sharply over the past few months to only 30.0% 30.0%
1.6% currently. The central bank has cut its main policy
20.0% 20.0%
rate by more than 200 bps since late September (it
currently stands at only 1.50%), and further easing seems 10.0% 10.0%
likely in the months ahead. In addition, the government
has announced some fiscal stimulus measures that may 0.0% 0.0%
eventually reduce the rate of deterioration in the economy

-10.0% -10.0%
The Taiwanese dollar has lost more than 10% of its value -20.0% -20.0%
against the U.S. dollar since mid-July as the Taiwanese

-30.0% IPI: Dec @ -32.3% -30.0%
economic outlook has deteriorated sharply. In the near
term, we project that the Taiwanese dollar will continue to -40.0% -40.0%
trend gradually lower. However, the Taiwanese dollar 1997 1999 2001 2003 2005 2007 2009
could begin to strengthen modestly later this year as the
Taiwanese economy stabilizes and starts to grow again. Taiwanese Export & Import Volumes
Year-over-Year Percent Change, 3-Month Moving Average
30.0% 30.0%
Taiwanese Exchange Rate
TWD per USD
36.00 36.00 20.0% 20.0%
TWD per USD: Feb @ 33.661
35.00 35.00 10.0% 10.0%
34.00 34.00 0.0% 0.0%
33.00 33.00 -10.0% -10.0%
32.00 32.00 -20.0% -20.0%

Volume of Exports: Dec @ -24.1%
Volume of Imports: Dec @ -22.8%
31.00 31.00 -30.0% -30.0%
1997 1999 2001 2003 2005 2007
30.00 30.00
1999 2001 2003 2005 2007 2009
29
Turkey Turkish Real GDP

Year-over-Year Percentage Change
12.5% 12.5%
10.0% 10.0%
• Real GDP growth in Turkey barely expanded in the third
quarter, rising only 0.5% relative to the same period in 2007. 7.5% 7.5%
Overall GDP growth probably slipped into negative 5.0% 5.0%
territory in the fourth quarter judging by the 13% decline in
2.5% 2.5%
industrial production that was registered during the
quarter. Not only has export growth turned negative 0.0% 0.0%
recently, but consumer spending and investment spending -2.5% -2.5%
have both turned down in the past few quarters.
-5.0% -5.0%
• Inflation was the big issue throughout most of 2008, but the -7.5% -7.5%
year-over-year rate has receded somewhat in recent months -10.0% -10.0%
due to economic weakness and the collapse in energy Year-over-Year Percent Change: Q3 @ 0.5%
-12.5% -12.5%
prices. The central bank, which had been tightening policy
2000 2001 2002 2003 2004 2005 2006 2007 2008
earlier in 2008, has cut rates by 375 bps since mid-
November. More easing likely will occur in the months
ahead. Turkish Industrial Production Index
25.0% 25.0%
• Turkey’s external accounts have deteriorated over the past IPI: Dec @ -17.6%
few years. The country’s current account deficit currently 3-Month Moving Average: Dec @ -12.5%
20.0% 20.0%
stands around 5% of GDP, the highest ratio in decades.
Large current account deficits, which must be financed by 15.0% 15.0%
capital inflows from abroad, make the country vulnerable

10.0% 10.0%
to the whims of risk-averse investors.
5.0% 5.0%
The Turkish lira rose to a seven-year high versus the
0.0% 0.0%
greenback last August, but it has subsequently lost about
30% of its value against the dollar as the global economic -5.0% -5.0%
outlook has deteriorated significantly. We project that the
lira will remain weak against the greenback, at least in the -10.0% -10.0%
near term, as Turkish growth prospects remain poor.

-15.0% -15.0%
However, the lira could begin to appreciate against the 1997 1999 2001 2003 2005 2007
dollar later this year as investors begin to anticipate
economic recovery in Turkey.
Turkish Merchandise Trade Balance
$0 $0
Turkish Exchange Rate
TRY per USD -$1,000 -$1,000
1.800 1.800
-$2,000 -$2,000
1.600 1.600
-$3,000 -$3,000
1.400 1.400 -$4,000 -$4,000
-$5,000 -$5,000
1.200 1.200
-$6,000 -$6,000
1.000 1.000
-$7,000 -$7,000
0.800 0.800
-$8,000 -$8,000
Merchandise Trade Balance: Dec @ -3,585.6 USD
0.600 0.600 -$9,000 -$9,000
1997 1999 2001 2003 2005 2007
TRY per USD: Feb @ 1.618
0.400 0.400
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
30
Energy Markets Crude Oil

NYMEX Front-Month Contract, Dollars per Barrel
$160 $160
Crude oil prices fell sharply last year as the global $140 $140
economy weakened significantly in the wake of the credit

$120 $120
crunch. The collapse was exacerbated by the unwinding of
speculative positions that contributed to the moon-shot in $100 $100
crude prices earlier in the year. Crude prices remain
$80 $80
depressed today because of ample inventories. Indeed,
U.S. inventories are currently 15% above their levels at this $60 $60
time last year. Distillate stocks are also elevated at present,
up about 10% on a year-over-year basis. $40 $40
$20 $20
Gasoline prices have followed crude prices lower. Crude Oil: Feb @ $40.17
However, prices of the former have not come down as $0 $0
much as the latter because stocks of gasoline aren’t as 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
ample as crude inventories at present. Indeed, gasoline

inventories are 3% lower than they were at the same time Crude Oil Inventory
last year. Year-over-Year Percent Change
20.0% 20.0%
Natural gas has not been immune to the same forces that 15.0% 15.0%
have driven oil prices over the past year. Indeed, the price
10.0% 10.0%
of natural gas in the United States is down more than 65%
from its peak last July. Gas in storage is up 5% over the 5.0% 5.0%
past year which has helped to put downward pressure on
natural gas prices. 0.0% 0.0%
-5.0% -5.0%
Until global economic activity starts to strengthen, it is
hard to envision a significant increase in energy prices. We -10.0% -10.0%
project that crude prices will remain roughly flat for the
-15.0% -15.0%
remainder of the year before rising somewhat next year as
Oil Inventory: Jan @ 15.3%
modest growth returns to the global economy. -20.0% -20.0%
2005 2006 2007 2008 2009
Gasoline Inventory
15.0% 15.0%
Natural Gas
Henry Hub Spot, Dollars per MMBTU
$16 $16 10.0% 10.0%
$14 $14
5.0% 5.0%
$12 $12
0.0% 0.0%
$10 $10
$8 $8 -5.0% -5.0%
$6 $6
-10.0% -10.0%
$4 $4
Gasoline Inventories: Feb @ -5.1%
-15.0% -15.0%
$2 $2
2005 2006 2007 2008 2009
Natural Gas: Feb @ $4.75
$0 $0
2005 2006 2007 2008 2009
Source: Moody’s Economy.com and Wachovia
31
Wachovia Economics Group
John E. Silvia, Ph.D. Chief Economist (704) 374-7034 john.silvia@wachovia.com

Mark Vitner Senior Economist (704) 383-5635 mark.vitner@wachovia.com
Jay H. Bryson, Ph.D. Global Economist (704) 383-3518 jay.bryson@wachovia.com
Sam Bullard Economist (704) 383-7372 sam.bullard@wachovia.com
Anika Khan Economist (704) 715-0575 anika.khan@wachovia.com
Azhar Iqbal Econometrician (704) 383-6805 azhar.iqbal@wachovia.com
Adam G. York Economic Analyst (704) 715-9660 adam.york@wachovia.com
Tim Quinlan Economic Analyst (704) 374-4407 tim.quinlan@wachovia.com
Kim Whelan Economic Analyst (704) 715-8457 kim.whelan@wachovia.com
Yasmine Kamaruddin Economic Analyst (704) 374-2992 yasmine.kamaruddin@wachovia.com
Wachovia Corporation Economics Group publications are distributed by Wachovia Corporation

directly and through subsidiaries including, but not limited to, Wachovia Capital Markets, LLC,
Wachovia Securities, LLC and Wachovia Securities International Limited.
The information and opinions herein are for general information use only. Wachovia does not
guarantee their accuracy or completeness, nor does Wachovia assume any liability for any loss that
may result from the reliance by any person upon any such information or opinions. Such information
and opinions are subject to change without notice, are for general information only and are not
intended as an offer or solicitation with respect to the purchase or sales of any security or as
personalized investment advice. © 2009 Wachovia Corp.

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Global Chart Book - February 2009

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Jay H.

Bryson, Global Economist

SPECIAL COMMENTARY February 12, 2009

Global Chartbook: February 2009

This report is available on www.wachovia.com/economics and on Bloomberg at WBEC

word “depression” when describing the Japanese economy at present. Indeed,

Dollar Appreciation Should Continue in Near Term

Forecasts as of February 11, 2009

Wachovia Currency Forecast

Wachovia International Interest Rate Forecast

World OECD Industrial Production

 The effects of the credit crunch caused global growth to

However, commodity prices have essentially collapsed as 2.0% 2.0%

Dollar Exchange Rates US Trade Weighted Dollar Major Index

 However, the dollar has rallied significantly since mid- 80 80

United States Real GDP

fourth quarter, the sharpest rate of contraction since 1982.

two consecutive quarters, and mounting job losses will

Nonfarm Employment Change: Jan @ -598,000

Euro-zone Euro-zone Real GDP

 After two consecutive quarters of declines in real GDP, the

 Most components of demand appear to be in full-blown 0.0% 0.0%

remains weak. The ongoing global recession will keep a lid

look for the main Euro-zone policy rate to reach 1.00%.

 The previously high-flying euro has declined sharply

1.50 1.50 4.00% 4.00%

1.30 1.30 3.00% 3.00%

Germany German Real GDP

with growth in industrial production, plunged to an all- 0.0% 0.0%

German Unemployment Rate

-10% -10% Unemployment Rate: Jan @ 7.8%

France French Real GDP

 There is an internal element to the downturn as well. 6.0% 6.0%

Growth in consumer spending weakened earlier this year 4.0% 4.0%

-8.0% IPI: Dec @ -11.1% -8.0%

French Merchandise Trade Balance

Italy Italian Real GDP

 An aging population and weak growth in real income 110 110

personal consumption expenditures has not exceeded 2%

Japan Japanese Real GDP

 Real GDP in Japan contracted in both the second and third

spending has also weakened sharply, and growth in

Volume of Japanese Exports

United Kingdom U.K. Real GDP

 Real GDP in the United Kingdom contracted at an 4.0% 4.0%

further in the start of the first quarter.

years. Thus, the upturn, when it comes, will likely be

CPI: Dec @ 3.1%

Canada Canadian Real GDP

 Monthly real GDP in Canada has contracted for two

 Retail sales for November were down and probably will

recently printed at 36.1 for January, well-below consensus

 Canada’s labor market sustained a jaw-dropping

broader downward trend.

 The Canadian dollar has been in a trading band between

1.600 1.600 8.0% 8.0%

1.000 1.000 -2.0% -2.0%

Australia Australian Real GDP

 The Australian economy has grown continuously since 8% 8%

boosted growth in real income. The decline in

0.500 0.0% 0.0%

Norway Norwegian Real GDP

 Real GDP in Norway contracted at an annualized rate of 6.0% 6.0%

The effects of the credit crunch caused global growth to

However, the dollar has rallied significantly since mid- 80 80

After two consecutive quarters of declines in real GDP, the

Most components of demand appear to be in full-blown 0.0% 0.0%

The previously high-flying euro has declined sharply

There is an internal element to the downturn as well. 6.0% 6.0%

An aging population and weak growth in real income 110 110

Real GDP in Japan contracted in both the second and third

Real GDP in the United Kingdom contracted at an 4.0% 4.0%

Monthly real GDP in Canada has contracted for two

Retail sales for November were down and probably will

Canada’s labor market sustained a jaw-dropping

The Canadian dollar has been in a trading band between

The Australian economy has grown continuously since 8% 8%

Real GDP in Norway contracted at an annualized rate of 6.0% 6.0%

The Norwegian krone has lost about 30% of its value

Real GDP in Switzerland was essentially flat in the third

The Swiss franc has depreciated almost 15% on balance

The Brazilian economy seemed like it bucked the global 9% 9%

The unfolding global recession appears to be contributing -3% -3%

The Chinese renminbi, which had gradually strengthened 10.0% 10.0%

Economic growth in India has moderated over the last few

India is not a manufacturing powerhouse like China, but

The slowdown in the United States, to which 85% of 2.0% 2.0%

The Mexican peso recently plunged to an all-time low -$1,500 -$1,500

Russian GDP rose 6.2% in the third quarter of 2008, the 9% 9%

Real GDP in Singapore fell 3.7% in the fourth quarter, the

Because the city-state is such an open economy, the

Real GDP in South Africa rose only 3.0% in the third

South Africa is incurring a sizeable current account deficit